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Alibaba selling healthcare assets to Hong Kong arm for HK$10.6B

Alibaba Group Holding Ltd. said May 29 that it agreed to sell part of its Tmall Pharmacy business to its Hong Kong-listed subsidiary Alibaba Health Information Technology Ltd. in exchange for HK$10.6 billion of newly issued shares in the latter company.

The proposed sale involves certain healthcare categories of the Tmall Pharmacy e-commerce platform, including adult products, medical devices and services, and healthcare products and services. Alibaba Group said those categories represent 3,300 merchants and US$3.2 billion in gross merchandise value in fiscal 2018 ended March 31.

The deal is expected to give merchants on Tmall Pharmacy closer connections with consumers and players in the healthcare ecosystem, while also leveraging Alibaba Health's existing product sales and services. In addition, Alibaba Health's analytical capabilities would be used to enhance the customer experience.

Upon deal completion, Alibaba Group's holding in Alibaba Health will increase to 56.2% from the previous 48.1%, while its voting interest in the unit will rise to 67.5% from 61.5%. The transaction is subject to closing conditions including approval by Alibaba Health shareholders and the Hong Kong Stock Exchange.

The Chinese e-commerce giant is looking to develop Alibaba Health into its flagship healthcare platform as part of a strategy to create "the best healthcare ecosystem in China," Alibaba Group CEO Daniel Zhang said in a statement.

"Healthcare is a strategically important area for Alibaba Group with strong growth potential," Zhang said.

The deal announcement comes as rising demand for higher-quality medical and healthcare services is expected to drive rapid growth in China's healthcare sector, according to Alibaba Group. It cited a Frost & Sullivan forecast that said total healthcare expenditure in China is expected to climb to 11.4 trillion Chinese yuan in 2026 from 4.6 trillion yuan in 2016, at a compound annual growth rate of 9.4%.

In late-morning trading in Hong Kong on May 29, shares of Alibaba Health were up 35 Hong Kong cents, or 5.17%, to HK$7.12.

As of May 28, US$1 was equivalent to 6.40 Chinese yuan.